Wages and Labor: What A/E/C Firms Need to Know Right NowApril 19, 2019
New Jersey labor laws are seeing notable changes in 2019, many of which are significant for Architecture, Engineering & Construction (A/E/C) firms to consider. Developers, builders and general contractors are heavily reliant on skilled labor while simultaneously tasked with balancing employee wages, retention and profitability. If you own an A/E/C firm—or any business with employees, for that matter—in NJ, this quick read is meant to bring you up to speed on the labor laws that will impact your business.
1. NJ Minimum Wage Raised
NJ Governor Phil Murphy passed a regulation in March 2019 raising the minimum wage in New Jersey from $8.85 an hour to $10 an hour, effective July 1, 2019; and from $10 an hour to $11 an hour, effective January 1, 2020. Meanwhile, with unemployment low and workers scarce, large employers such as Target, Bank of America and many others have vowed to raise their own minimum wages as high as $15 an hour.
A/E/C firms often hire from the same pool as these companies, which means maintaining strong, positive relationships with your current employees will become more important than ever as it becomes increasingly difficult and costly to replace them. Of course, higher wages also affect profitability. Contractors are often working on thin margins and those increases will erode a job’s profitability.
2. Certified Payroll Reporting
Effective April 1, 2019, contractors working directly with the State of New Jersey are required to report to the Department of Labor and Workforce Development (DOL) a host of human resources information about their employees, including gender, ethnicity, job category, classification, compensation, pay rate and hours worked. This comes after the Governor signed the passage of the Assembly bill A3666. This bill requires every contract subject to State prevailing wage requirements to require each worker employed under the contract to be enrolled in, or have completed, a registered apprenticeship, unless the contractor or subcontractor certifies that the worker is paid not less than the journeyworker wage rate.
3. Worker Classification
For the first time in many of our careers, CPAs across NJ received a letter from the New Jersey Division of Consumer Affairs reminding us to address a specific facet of labor with clients: worker classification. The letter asked us to guide you on classifying your workers appropriately, pointing to the DOL’s “ABC” test governing whether a worker is an employee or independent contractor.
(A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
(B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.
Item (A) essentially means that you as the employer cannot dictate how an independent contractor does their work. Item (B) gets trickier for A/E/C firms, because you are not able to classify workers as independent contractors if they perform the same line of work as you. A plumber, for example, can pay an electrical contractor as an independent contractor because plumbing and electrical engineering are two distinct trades. A plumber hiring another plumber as an independent contractor, on the other hand, would be failing Item (B). Item (C) states that an independent contractor performs their specified services for others and not just for you.
The reason we received a letter advising us to bring worker classification to your attention is likely because of the growing “gig economy.” More people working as independent contractors means less people on payrolls, which, in turn, could cause the State to have budgetary concerns around its unemployment and disability funding. Earnings are also more easily tracked on W-2s versus the issuance of a 1099 for subcontractor. Therefore, they are keeping a watchful eye for independent contractors that should be classified as employees.
With labor laws in New Jersey rapidly evolving, you are at a critical juncture now to enhance your accounting and financial controls for the future. See how Curchin can help.